Many sole practitioners and small firms may need an external cold file review before the end of 2016 in order to comply with Irish Audit Regulations.
One of the contributing reasons why audit firms’ get a poor rating on their monitoring visits is because they have not been in the habit of having experienced external input into their audit quality procedures. Quite often they lack a systematic means of improving the audit process.
The CARB Audit Regulations and Guidance (effective from 1 January 2014) require an independent cold file review (CFR) of completed audit engagements for each responsible individual at least once every third year, to meet the monitoring requirements of the clarified International Standard on Quality Control 1 (ISQC 1). Any firm registered with CARB to carry out audit work must comply.
CFRs are best conducted by a suitably qualified and experienced individual. The reviewer should be someone who has not been involved in the audit and preferably someone who is independent of the audited entity.
These requirements can be particularly challenging for small firms and sole practitioners. Some small practices have sufficient senior audit staff, so they may be able to undertake CFRs internally. One senior auditor could potentially review an engagement that they were not involved in, but this is seldom an option for sole practitioners.
If a suitable individual is not available to undertake the review within the firm, then an external reviewer should be used, at least once every three years. (Audit Guidance paragraph 3.20 effective 1 January 2014).
Many small firms interpret this as meaning that CFRs are required only once every three years but the CARB Audit Regulations require a cold file review every year with internal reviews sufficing for two of those three years.
As the clarified ISQC 1 (for UK and Ireland) came into force for reviews of audits for periods ending on or after 15 December 2010, the second three-year deadline for external cold file reviews will expire on 31 December 2016, so there is still time to get this right.